Credit - Heart Matters

4. Good Debt, Bad Debt

b. Describe how good student loandebt can turn to bad debt.

One type of good debt is when you invest in yourself. A student loan is good debt becuse when you complete your education and training, you have the potential for a higher paying job. Because you earn more, you're better able to repay your loan and — in the long run — you have the potential to make more money. When you examine national wage data, income levels rise as education levels rise.

According to the U.S. Census Bureau, in 2007, the typical full-time year-round worker in the United States with a four-year college degree earned $56,788, that's 82 percent more than the $31,071 earned by the typical full-time year-round worker with only a high school diploma. That's more than $1 million difference over a life time of work! You can see that a college degree can really pay off financially.

However, student loandebt can turn into bad debt when…

You don’t complete your program of study.

You select a major for which there is low, or no, labor market demand.

You select a major that qualifies you for jobs that don’t pay enough to comfortably allow you to repay your student loan.

You accept full amounts of student loans, instead of just taking the partial amount you need. Relying on loans and refunds can lead to excessive and unnecessary debt.

If you are responsible about your education and you select a career path that has potential to make you a viable income, then your student loan is a positive investment in your future. In our upcoming units we will explore other aspects of personal finance that will offer you the opportunity to take even more personal control over your relationship with money. Hope to see you there!